Profit-sharing between an open-source firm and application developers — Maximizing profits from applications and in-application advertisements |
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| Institution: | 1. Department of Business and Information Technology, Missouri University of Science and Technology, 107 I Fulton Hall, Rolla, MO 65409, USA;2. Department of Mathematics and Statistics, Missouri University of Science and Technology, 110 Rolla Building, Rolla, MO 65409, USA;1. Department of Engineering Technology, Waterford Institute of Technology, Waterford, Ireland;2. UCD School of Business, University College Dublin, Dublin, Ireland;1. Department of Marketing, Lancaster University Management School, Lancaster LA1 4YX, UK;2. Department of Marketing and Strategy, Stockholm School of Economics, P.O. Box 6501, S-113 83 Stockholm, Sweden;1. University of Helsinki, Faculty of Pharmacy, Division of Pharmaceutical Chemistry and Technology, Viikinkaari 5E, FI-00014 University of Helsinki, Finland;2. Turku Institute for Advanced Studies, Turku School of Economics, Department of Marketing, FI-20014 University of Turku, Finland;3. Tunturikatu 17 B 21, FI-00100 Helsinki, Finland;4. University of Helsinki, P.O. Box 62, FI-00014 University of Helsinki, Finland;1. College of Business Administration, Huaqiao University, Quanzhou 362021, China;2. Marketing Research Centre, Leeds University Business School, UK;3. Department of Management and Marketing, Faculty of Business Administration, University of Macau, Avenida Padre Tomas Pereira, China |
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| Abstract: | More and more for-profit organizations are promoting their products using open-source strategies. In Google's Android open-source project, the open-source firm and application developers share profits from the sales of paid applications and advertisements in free applications. Recently, the open-source strategy has received considerable attention in the literature. However, the profit-sharing model and in-application advertisements have not been well studied in the context of an open-source business. These are critical gaps in the literature, since the open-source firm may utilize a profit-sharing scheme to exercise non-coercive power and to grow the user network and advertising business. We propose a model to understand how the profit-share percentage and the percentage of paid applications, in relation to the size of the user network, affect the open-source firm's profits from applications and in-application advertisements. Our study shows that growing the user network does not necessarily increase the open-source firm's profit. Further, the study suggests that the optimal profit-share percentage maximizing the open-source firm's profit from advertisements is lower than that maximizing the profit from applications. Additionally, our study illustrates a potential threat of application developers' opportunistic behavior against the open-source firm. |
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